- March 17, 2020 at 9:56 am
Would you mind explaining the following terms in a simple way? I am totally confused:
1. Capital Expenditure
2. Revenue Expenditure
3. Capital Income
4. Revenue Income
5. Capital Receipt
6. Revenue ReceiptMarch 17, 2020 at 5:20 pm
Capital expenditure relates to purchases that will be of benefit (ie to generate or increase profit) over the long term. Typically, it relates to teh acquisition of non-current assets. For example, buying a machine lasting 5 years which increases profit will be capital expenditure. Also, if the machine had additional expenditure on it to increase its profit-earning capability (eg adding an increased capacity hard drive to a computer) then this ‘enhancement’ expenditure is also capital expenditure. Capital expenditure appears on the SOFP and its cost is spread over the useful life of the asset by an annual depreciation or amortisation charge.
Revenue expenditure relates to one period only eg rent, wages. It also relates to maintaining the profit earning capacity of a non-current asset. So the repair of an asset to bring it back to it’s original profit-earning ability is revenue expenditure. Revenue expenditure is an expense.
Capital income arises from an asset because of the passage of time, not because the asset is being used. For example, buying a piece of land at $100,000 and selling it at $150,000. It normally relates to the sale of non-current assets.
Revenue is ‘normal’ income from sales of goods or the supply of services ie from trading.
Capital receipt arises from the sale of a non-current asset or from investors introducing capital like subscribing shares or making a loan. It is not from trading.
Revenue receipts are the receuipts form trading ie selling goods or services.
HTHMarch 18, 2020 at 12:39 pm
Thanks a bunch!
I think there is no difference between capital income, capital receipt and gain.
Am I right?March 19, 2020 at 12:02 pm
Capital income = capital receipt. Capital gain is the difference between cost and sales amount of a non=-current asset.
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